The Rise of Impact Investing in the Southeast: Are we really scaling philanthropy?
In contemplating the degree to which impact investing influences philanthropy in our region, the blog last fall suggested that innovative forms of capital are slowly creeping into the thought of foundation leaders and organizations. Impact investing trends are continuing to show a hockey-stick swing upward – yet, we have to ask, is it really scaling social good?
Reviewing the market overall, global impact investments of all types - including Environmental, Social & Governance (ESG) and Socially Responsible Investing (SRI) - has tripled to nearly $12 trillion since 2015. This incredible growth is fueled by institutional and individual investors interested in aligning mission with money by investing in over 600 socially-minded funds and other private investments.
In the U.S., community-based impact investments, which is capital invested by community development lenders, credit unions and others investors in low-income communities, now exceeds $180 billion, a three-times increase since 2014. These are primarily driven by place-based investors seeking greater impact and scale in areas such as affordable housing, charter schools, healthcare clinics and job creation among small businesses in economically-deprived areas, often at below-market rates of return.
As important, there is a form of wholesale capital that supports the institutions making community investments, which comes from foundations, commercial banks, impact funds and public sector partners who share an interest in creating social change along with a financial return. The trends are showing no signs of slowing (see US SIF reports) and new entrants continue to join the market from all corners of the investment world, including university endowments, religious organizations, development authorities and many others.
So what’s happening in the Southeast? We have a number of exciting, ecosystem-level initiatives underway in the region:
- Collaborations: Rapidly growing participation in collaborations such as the Appalachian Funders Network, Virginia Impact Report, NOLA’s Social Venture Fund and the Georgia Social Impact Collaborative (GSIC), all of which have emerged in the past couple of years, are delivering on ways to educate, connect and, in some cases, consolidate and invest capital for impact. All of these either have foundations as partners or founders.
- Family Foundations: Certain private foundations are leading the way by becoming hubs of community-based impact investing. Examples include Jesse Ball DuPont in Florida, Mary Reynolds Babcock and Phillips Foundation in North Carolina, and Winthrop Rockefeller Foundation in Arkansas, which each employ impact capital strategies, along with grants, to achieve mission.
- Community Foundations: A recent surge of new loan funds run by Community Foundations, such as in Louisville (CFL Impact Capital), Charleston (Coastal Community Foundation’s Place-based Impact Investing) and Atlanta (GoATL Fund), are bringing impact investing to the broader donor community. Their donors appreciate investing sidelined philanthropic capital in local causes – often the same ones their grant dollars are supporting. Often the center of local philanthropy, community foundations are leveraging their relationship among hundreds of donors who wish to leverage grants by injecting local nonprofits with impact capital.
- Community Development Lenders: For decades, many southern markets have been deprived of community development capital available in other regions, which often provides the foundational layer of capital to ensure sustainable social outcomes. That trend is changing rapidly, as a number of national community development financial institutions (CDFIs) have moved into the region with new or expanded offices, including Enterprise Community Partners, Reinvestment Fund, Low Income Investment Fund, Local Initiatives Support Corporation and LiftFund, all of whom have hired regional representatives. These nonprofit lenders are leveraging impact capital that’s also coming out of the region, especially from foundations and impact funds, which find that investing in CDFIs is an efficient way to achieve impact, diversify risk and reduce cumbersome due diligence and operating challenges.
- Mission Investors Exchange (MIE) – Atlanta in 2020: Recently, MIE announced that its biannual national conference will be held in Atlanta May 11-13, 2020. Exciting news, since this will be MIE’s first trip to the South for this dynamic convening of national and regional leaders of impact investing trends. MIE is the country’s premier association for foundations engaged in impact investing and the conference provides insights into best practices, effective trends and developing innovations in philanthropic-oriented impact investing.
These initiatives are just a small sample of larger market trends, where scores of other investors, corporations, government entities and anchor institutions (hospitals, universities, etc.) are embarking on socially-minded strategies for leveraging capital. Add to this a rapidly emerging social enterprise sector, where entrepreneurs are intent on disrupting the status quo and it becomes clear that our region is swiftly developing a stronger and more inclusive ecosystem of impact investing.
Yet, there’s still a long way to go. In the South, we’re experiencing critical shortages of capital and resources in affordable housing, public schools, early stage social ventures and quality healthcare. And, our region seems to run behind other areas of the country, where many of the most impactful social innovations emerge, such as the West Coast, Northeast and upper Midwest (not surprisingly, these regions are also home to our nation’s largest impact investors, such as Ford, Rockefeller, MacArthur, Kellogg and Kresge). The South also tends to lack a robust enabling network of support organizations, such as the incubators, accelerators and hubs of innovation that often foster a vibrant market for new solutions.
At the same time, there is clear evidence that impact investing is blossoming in the South and becoming an important tool for philanthropy. In early 2017, we counted fewer than five community foundations in the South that had impact investing programs; today, we have over a dozen. In just the past two years in Georgia, we’ve seen our first environmental impact bond, our first impact debt fund and our first TOD (transit-oriented development) affordable housing fund. Our various ecosystem development initiatives – taking place across the South - are exposing all sorts of nontraditional investors to impact investing, including venture capital firms, angel investors and school endowments.
Though it’s a stretch to claim that we are successfully scaling philanthropy, we certainly have the core elements in place to suggest the upward momentum will continue. Combine our critical need for social capital, a burgeoning universe of investors and an engaged philanthropic sector, leads us to conclude that impacting investing will continue to accelerate social change in the South.
Mark Crosswell is managing director of social impact strategy and the GoATL Fund, an impact investing initiative of the Community Foundation for Greater Atlanta.